1. The Nova Company is considering replacing a machine that will cost $240,000. It expects to realize cost savings of $70,000 a year before taxes for each of the next five years. The company will use an accelerated method of depreciation as follows:(25 Points) (Please show all your work and computations.)
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Year 1
|
.20
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Year 2
|
.32
|
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Year 3
|
.192
|
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Year 4
|
.115
|
|
Year 5
|
.115
|
|
Year 6
|
.058
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At the end of five years, the company expects the machine will have no salvage value. The company has a tax rate of 45 percent and has determined that 12 percent is the appropriate discount rate to use. Prepare an analysis showing the net present value. Indicate what salvage value is necessary of the old machine in order to justify the purchase of the new machine.
2. Please write a paragraph or two to answer the four questions listed below (5 Points Per Question, 20Points Total) (At least 2 paragraphs per question.)
a. How is the budget used for performance evaluation?
b. Describe a comprehensive master budget.
c. Explain the difference between a flexible budget and master budget.
d. Compare the four types of responsibility centers.
3.Materials and labor variances: The Chocolate Factory presents the following data for September:
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Standards per Batch
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Actual Total
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|
Materials
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1 Pound at $3.50 per Pound
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59,000 Pounds
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Labor.
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1.5 Hours at $4.00 per Hour
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82,000 Hours
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Batches Produced
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58,000 Batches
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During the month, the firm purchased 59,000 pounds of materials for $216,500. Wages earned were $330,000.
Required:
1. Compute the direct material and direct labor price and efficiency variances.
2. Based on the information for the company, write a short report explaining the cause of the variances that you computed.
4. Provide the missing data in the following situations:(20 Points Total)
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|
Sigma
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Tau
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Gamma
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|
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Division
|
Division
|
Division
|
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Sales Revenue
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$ (a)
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$250,000
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$ (g)
|
|
Division Investment
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$ (b)
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$ (d)
|
$800,000
|
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Operating Profit
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$400,000
|
$10,000
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$144,000
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Profit Margin Percentage
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8%
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(e)
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12%
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Investment Turnover
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(c)
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(f)
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1.5
|
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Return on investment
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16%
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10%
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(h)
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5. Big Farms LLC has two production departments (Planting and Harvesting) and two service departments (Cafeteria and Repairs.) The service department's costs must be allocated to production departments. Management has decided to allocate the cost of the cafeteria to other departments based upon the average number of employees and the cost of the Repairs Department based upon the number of machine hours used.(10 Points Total)(Please show all your work and computations.)
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Departments
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Pre-Allocation Costs
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Avg. No.
Employees
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Machine
Hours
|
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Cafeteria
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$ 43,200
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5
|
100
|
|
Repairs
|
60,000
|
12
|
12,000
|
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Planting
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350,000
|
20
|
40,000
|
|
Harvesting
|
700,000
|
40
|
20,000
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Regardless of the allocation method used, Big Farm always starts the allocation process with the Cafeteria Department.
If Big Farm uses the step method, what additional overhead costs should be allocated from the service departments to the Planting Department?